Cleveland Can’t Sue|Wall St. Over Bad Loans

(CN) – Cleveland can’t sue Merrill Lynch, JPMorgan and other Wall Street players involved in the subprime mortgage mess for devastating its economy, the 6th Circuit ruled, because the “connection between the alleged harm and the alleged misconduct is too indirect to warrant recovery.”

The federal appeals court in Cincinnati upheld the dismissal of Cleveland’s public nuisance lawsuit against 22 mortgage lenders and finance companies, ruling that the city’s allegations stretched the limits of casualty. Cleveland had argued that the collapse of the subprime mortgage market “led to thousands of foreclosed homes in neighborhoods throughout Cleveland that became … eyesores, fire hazards, and easy prey for looters and drug dealers in search of a place to conduct their business,” and sought to recover millions of dollars in lost tax revenues and other damages from the companies. In dismissing the lawsuit, a federal judge found that the city could not prove that the crisis had directly caused the alleged blighting, crime and safety hazards. The three-judge appellate panel agreed. “The injuries that Cleveland alleges could have been caused by many other factors unconnected to the defendants’ conduct,” Judge Richard Suhrheinrich wrote. “Home buyers chose to enter into a subprime mortgage and to default on their loans. And, once the mortgagor defaulted, the mortgagee or his assigns chose to begin the foreclosure process. These voluntary choices were made for a variety of reasons unrelated to the defendants.”